Bankruptcies hit year's high in June

by Russ Wiles - Jul. 10, 2008 12:00 AM
The Arizona Republic

Valley bankruptcies in June hit their highest level of the year, pushed up by lingering consumer-debt burdens and contrasting with easing financial strains nationally.

A total of 1,118 individuals and small businesses filed for creditor protection last month in metro Phoenix, representing a near-doubling from 582 filings in June 2007, according to the U.S. Bankruptcy Court in Phoenix.

That raised the first-half total to 5,711 filings from 3,110 Chapter 7 filings, which discharge most debts and provide for a fresh financial start, accounted for nearly 4 in 5 bankruptcies. Chapter 13 debt-repayment plans accounted for most of the rest.

Although resets on subprime adjustable-rate mortgages are expected to peak this summer, thousands of Arizonans may face pressure beyond that.

"I think we'll see a huge influx of bankruptcies in the fall and early winter," said Gilbert attorney Chris Dutkiewicz, noting that many recent filers have been struggling with debt burdens for months.

As a positive, Dutkiewicz hasn't noticed many people seeking protection due to job losses despite a mildly worsening employment situation.

Grim bankruptcy figures also have shown up elsewhere around the state, although the Valley appears among the hardest-hit areas. Compared with the 92 percent spike in Valley bankruptcies in June, the Yuma area had a 62 percent increase and Tucson, 43 percent.

Statewide, bankruptcies rose 76 percent in June from a year earlier. They're up 73 percent for the first six months.

Nationally, bankruptcy filings rose a milder 21 percent compared with June 2007 and actually fell 9 percent from May, reported the American Bankrutpcy Institute and National Bankruptcy Research Center.

For the first half, U.S. filings were up 30 percent over the same stretch in 2007. Subprime-mortgage pressures have been more acute in Arizona and a few other states.

"The overall trend of rising bankruptcies reflects the growing financial strain felt by U.S. households burdened by high debt, rising mortgage costs and falling home values," said the ABI's executive director, Samuel Gerdano, in a statement.

Down-payment aid debated

Home buyers turning to non-profits for cash

by J. Craig Anderson - Jul. 10, 2008 12:00 AM
The Arizona Republic

Arizonans treading in the housing market's choppy waters have found an unusual lifeline - a group of non-profit organizations that siphon down payments from home sellers to buyers.

Use of the decade-old practice known as down-payment assistance has dramatically increased since the demise of subprime lending because it offers another opportunity for buyers without substantial savings to obtain mortgage loans.

Advocates of down-payment assistance contend it has kept Arizona's failing real-estate market on life support by opening doors for responsible borrowers who simply lack the cash for a down payment.

Critics of the practice say it allows home sellers to kick back a percentage of bank-loaned money to buyers, which would be illegal if not done through a non-profit intermediary.

Housing statistics also indicate that charity-assisted loans default at higher rates compared with loans where the down payment comes from the buyer.

The Federal Housing Administration, which insures all loans involving down-payment assistance, has argued that such loans carry a higher default rate and could ultimately bankrupt the FHA.

A housing-reform bill up for vote in the U.S. Senate this week calls for eliminating the practice, while a competing resolution in the House would allow it to continue with some restrictions.

Phoenix loan originator Dean Wegner said nearly half of the home loans being issued involve seller contributions to special non-profit organizations that gift the money - usually 3 to 6 percent of the home's sale price - to buyers after charging a transaction fee of $400 to $600. Unlike other charitable contributions, the seller's donations are not tax-deductible.

"It's a loophole in the FHA guidelines that says the down payment can come from a 501(c)(3) charity," Wegner said.

Now that subprime loans and their creative financing schemes are gone from the market, lenders have returned in droves to FHA loans and the primary reason is down-payment assistance, he said.

"This is what everyone is talking about now," Wegner said, adding that sellers are generally willing to put up the money because it greatly increases their chances of finding a buyer.

The two leading providers of down-payment assistance are AmeriDream, based in Gaithersburg, Md., and Sacramento-based Nehemiah Corp.

Nehemiah was involved in 676 Arizona home-sales transactions in 2007 and is on pace to quintuple that amount this year, passing down payments from buyer to seller on 1,692 sales as of early July.

AmeriDream President Ann Ashburn said the two non-profits provide a vital service to low-income, minority and first-time home buyers while giving the economy a needed boost.

Ashburn opposes eliminating down-payment assistance programs that benefit "good, qualified people."

"The real tragedy will be that 100,000 to 200,000 home buyers annually will be locked out of homeownership," she said.

AmeriDream data indicates that roughly a million U.S. residents have used down-payment assistance in the past 10 years, including nearly 43,000 Arizonans.

Nationwide, $130 billion in loans have been generated by the practice, the non-profit says, with about $5.5 billion in Arizona.

Since its advent, down-payment assistance has faced several attempts by the federal government to ban its practice, but so far the courts have protected it.

In recent months, FHA Commissioner Brian Montgomery has launched a full-scale verbal attack on down-payment assistance, calling it a "shell game" that threatens to bankrupt his administration.

"We had to book an additional $4.6 billion in unanticipated long-term losses, mostly due to the increased number of certain types of seller-funded loans in the FHA portfolio," Montgomery said in June.

"Unless we take action to mitigate these losses, FHA will soon either have to shut down or rely on appropriations to operate."

Montgomery also said the federally insured value of those loans is often inflated, because many sellers simply tack on the amount of their charitable contribution to the home's sale price.

About 30 percent of all FHA loans now involve down-payment assistance, according to the U.S. Department of Housing and Urban Development, FHA's parent agency.

HUD data indicates that charity-assisted loans were more than twice as likely to go into default or foreclosure in recent years than loans with the down payment coming from buyers' pockets.

However, Wegner said all FHA loans have credit-score and income requirements, which make them far less risky than subprime loans.

"These people are still getting scrutinized heavily," he said.

One such buyer is Lawrence Smith, who recently purchased a vacant Phoenix home from an out-of-state investor. Although he had never heard of down-payment assistance, his real-estate agent recommended he look into it.

"I had gone through a divorce, so most of my assets were gone," Smith said.

He got an FHA loan with down-payment assistance through AmeriDream. Smith said the entire process was transparent and spared him the six to 12 months it would have taken to save up a down payment.

"I think if you have people that have decent credit and decent incomes, but for whatever reason can't come up with the down payment, it makes a difference," he said.

July 8, 2008 - 9:57PM

Waveyard development group puts team together

Beth Lucas, Tribune

A group of planners and engineers who will build a water adventure park in Mesa is beginning to take shape.

Waveyard Development announced Tuesday it had secured three major engineering and development companies to begin planning Waveyard, which is expected to open in 2011 in west Mesa.

The group is made up of Kentucky-based The Weber Group, Phoenix's Hunt Construction Group and the Neuman Group of Beaver Creek, Wis.

The companies are the first to become part of Waveyard's Liquid Evolution Adventure Parks, or LEAP, a group that will advocate for and design watersports parks nationwide. The group is proposed to help plan everything from small water parks to developments similar to the scope of Waveyard.

Ultimately, LEAP will include real estate developers, designers and engineers that will first focus on development of Waveyard before using their expertise elsewhere, said spokesman Bo Morris.

"They have the technology to bring projects as big as Waveyard to different cities," he said. "Or, if a city or community wanted to bring a smaller wavepool or any number of types of water sports facilities, they are capable of doing it."

Waveyard is planned on 125 acres near Dobson Road and the Red Mountain Freeway stretch of Loop 202, and will include a resort, a retail village, dining and entertainment and a variety of watersports including surfing, rafting, kayaking and scuba diving.

Mesa voters in November overwhelmingly approved a $20 million sales tax rebate over 10 years, plus interest, and $1.5 million in public improvements to build Waveyard.

The plan is to break ground by early next year, or as soon as late this year.

Waveyard co-founder Richard Mladick said in a news release that the group will work to create "the premiere outdoor adventure destination in the world."

The Weber Group, which will serve as master architect, has designed projects including Six Flags Kentucky Kingdom and Nickelodeon Central at Paramount's Carowinds in Charlotte, N.C.

Hunt Construction Group will lead commercial construction, and has experience including developing University of Phoenix Stadium in Glendale and Scottsdale's W Resort and Spa.

The Neuman Group will bring its experience in aquatic planning, which has included Pennsylvania-based Hershey Entertainment & Resorts and Wave Development.

South E.V. doing best in commercial real estate

Not real good news but apparently it is not so bad in the SE Valley

July 7, 2008 - 6:16PM

Edward Gately, Tribune

The south East Valley remains a bright spot in an otherwise severely struggling commercial real estate market across most of the region, according to a study by brokerage giant CB Richard Ellis.

Its second-quarter market analysis of the Valley's office, industrial and retail sectors shows much of the Valley saddled with unusually high vacancy rates and falling occupancy rates.

Valleywide, the office vacancy rate continued to increase, rising by more than 1 percent to 16.3 percent, more than 3 percentage points higher than at the same time last year. For the first time in nearly 10 years, the amount of newly occupied office space was in the red by more than 170,000 square feet.

"It is a very bad quarter," said Jerry Noble, first vice president of CB Richard Ellis. "We're in waters that Phoenix hasn't been in a long time."

The Central Avenue, Piestewa Peak and Camelback corridor office markets in Phoenix are all in bad shape, and Scottsdale has also slowed, Noble said.

"As far as the south East Valley goes ... quarter over quarter even through these slower times, we're seeing some of the biggest leases in town signed in the Chandler market, some of which are in that Chandler-south Loop 202 market," he said.

Tempe and Chandler recorded the two highest rates of newly occupied office space, "so we're continuing to see bigger employers trend down to those freeway-served markets," Noble said.

"There's still a ton of excitement and energy on the south Loop 202 down there, and I think there's going to continue to be tenants looking for space in that area of town, as well as the south Loop 101 in the Price (Road) corridor," he said. "You've got fantastic demographics, very good retail amenities, your work force, freeway access and an abundance of employers that are managing the economy. You're continuing to see technology companies emerge."

As for industrial, the south East Valley again presents a better picture than the rest of the Valley, said Mark Krison, senior vice president of CB Richard Ellis.

"The south East Valley has a different picture than the entire marketplace, and it's substantially better," he said.

Valleywide, there are 6,831 industrial buildings encompassing 260 million square feet with an 11.12 percent vacancy rate. The south East Valley includes 2,253 buildings encompassing 78.8 million square feet with a 9 percent vacancy rate, he said.

"The south East Valley has always been more of a demographic core relative to the supply of human beings for employment," he said. "There's more bodies, there's better bodies for what you're looking for than historically on the west side of Phoenix."

And now with fuel prices, and therefore the cost of commuting, on the rise, employers want to locate closer to their employees, Krison said.

"If you're going to look for a job, and you can go to work in Metrocenter or you can go to work in Chandler, and you live in Chandler, why would you go to Metrocenter and drive?" he asked.

Concerning retail, companies in that sector are continuing to curtail expansion plans throughout the Valley. The vacancy rate has increased for five consecutive quarters to 6.53 percent at the end of the quarter, according to the brokerage.

Apache Junction and the Mesa/Chandler/Gilbert submarkets remain the Valley's top performers, with higher rates of newly occupied retail space.

Fed to curb shady home-lending practices

Jul. 8, 2008 01:08 PM
Associated Press

WASHINGTON - The Federal Reserve will issue new rules next week aimed at protecting future homebuyers from dubious lending practices, its most sweeping response to a housing crisis that has propelled foreclosures to record highs.

Fed Chairman Ben Bernanke spoke of the much-awaited rules in a broader speech Tuesday about the challenges confronting policymakers in trying to stabilize a shaky U.S. financial system. To that end, Bernanke said the Fed may give squeezed Wall Street firms more time to tap the central bank's emergency loan program.

To prevent a repeat of the current mortgage mess, Bernanke said the Fed will adopt rules cracking down on a range of shady lending practices that has burned many of the nation's riskiest "subprime" borrowers - those with spotty credit or low incomes - who were hardest hit by the housing and credit debacles.

The plan, which will be voted on at a Fed board meeting on Monday, would apply to new loans made by thousands of lenders of all types, including banks and brokers.

Under the proposal unveiled last December, the rules would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower's income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.

"These new rules ... will address some of the problems that have surfaced in recent years in mortgage lending, especially high-cost mortgage lending," Bernanke said.

Consumer groups have complained that the proposed rules aren't strong enough, while mortgage lenders worry that they are too tough and could crimp customers' choices.

In an extraordinary action aimed at averting a financial catastrophe, the Fed in March agreed to let investment houses go to the Fed - on a temporary basis - for a quick, overnight source of cash. Those loan privileges, which are supposed to last through mid-September, are similar to those permanently afforded to commercial banks for years.

"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end should the current unusual and exigent circumstances continue to prevail in dealer funding markets," Bernanke said in prepared remarks to a mortgage-lending forum in Arlington, Va.

The Fed's decision to act - temporarily at least - as a lender of last resort for Wall Street firms was made after a run on Bear Stearns pushed the investment bank to the brink of bankruptcy and raised fears that others might be in jeopardy. It was the broadest use of the Fed's lending powers since the 1930s.

Bear Stearns was eventually taken over by JPMorgan Chase & Co., with the Fed providing $28.82 billion in financial backing.

Those controversial decisions have drawn criticism from Democrats in Congress and elsewhere that the Fed is bailing out Wall Street and putting billions of taxpayer dollars at risk.

Bernanke, in appearances on Capitol Hill has said he doesn't believe taxpayers will suffer any losses.

In his speech Tuesday, the Fed chief defended those actions anew. If the Fed didn't intervene, he said, problems in financial markets would have snowballed, imperiling the country.

"Allowing Bear Stearns to fail so abruptly at a time when the financial markets were already under considerable stress would likely have had extremely adverse implications for the financial system and for the broader economy," Bernanke said to the mortgage forum, organized by the Federal Deposit Insurance Corp.

The Fed's consideration of giving Wall Street firms more time to tap the Fed's emergency loan program is part of an ongoing effort by the central bank to bring back stability to fragile financial markets and help to bolster shaky confidence on the part of investors.

Policymakers - in the White House, in Congress and other federal agencies - will need to work together to come up with ways to make the U.S. financial system more resilient and stable and to prevent a repeat of the types of problems that brought about the end of Bear Stearns, an 85-year-old institution, Bernanke said.

Although those efforts are already under way and will be the focus of a House Financial Services Committee hearing Thursday, it will fall to the next president and next Congress to settle them. Both Bernanke and Treasury Secretary Henry Paulson are scheduled to testify at Thursday's hearing.

The Bush administration has proposed revamping the nation's financial regulatory structure. That plan would make the Fed an ubercop in charge of financial market stability. But the Fed would lose daily supervision of big banks. Bernanke said the Fed must maintain this power if it is to be an effective overseer of financial stability.

The Fed, which regulates banks, and the Securities and Exchange Commission, which oversees investment firms, announced an information-sharing agreement on Monday aimed at better detecting potential risks to the financial system.

Over the longer term, though, Congress may need to adopt legislation to bolster supervision of investment banks and other large securities dealers, Bernanke said.

Bernanke recommended that Congress give a regulator the authority to set standards for capital, liquidity holdings and risk management practices for the holding companies of the major investment banks. Currently, the SEC's oversight of these holding companies is based on a voluntary agreement between the SEC and those firms.

Arizona law now requires loan officers to be licensed

Arizona Republic

Jul. 6, 2008 12:00 AM

Arizona's nearly 10,000 loan officers will have to have a license starting in 2010.

At almost the end of the state's legislative session in the wee hours of the morning, lawmakers approved a bill that requires loan officers and mortgage originators to pass a test, pay a fee and notify the Arizona Department of Financial Institutions where they are working. The move follows at least three failed attempts to pass similar legislation.

Many from the state's mortgage and real-estate industries backed the bill and even protested when it appeared it had stalled.

"This will bring more accountability to the lending industry and is the start of repairing that badly damaged industry," said Sen. Jay Tibshraeny, R-Chandler, who introduced the legislation.

The Department of Financial Institutions, which already regulates mortgage brokers and lenders, received a record number of complaints about bad loans last year.

Absent from the late-night debate and vote over the bill was Sen. Pamela Gorman, R-Anthem, who argued that government regulation wasn't necessary. She had introduced legislation that called for a voluntary registration of mortgage originators with the secretary of state.

A civil settlement has been reached in Phoenix with Wells Fargo Bank and Ticor Title Agency of Arizona over alleged false claims submitted to FHA on "pre-foreclosure sales."

The U.S. Attorney's Office of Arizona has worked out a deal for Wells Fargo to pay $4 million, and Ticor to pay $265,370, though both firms deny the government's allegations. The government contends it suffered losses of $2.1 million from 70 false claims to the FHA.

That housing agency's pre-foreclosure sales program sometimes allows homeowners with federally insured loans to avoid foreclosures by selling their homes for less than what is owed. Then the lender can submit an insurance claim to FHA for the balance of the loan.

The investigation leading to the settlement was conducted by the U.S. Department of Housing and Urban Development and the Office of Inspector General.

Indicted broker

Phoenix mortgage broker Rick McCullough has pleaded not guilty to fraud and theft charges, according to the Arizona attorney general. McCullough, president of CactusCash, was indicted by a state grand jury in late June for the charges.

The indictment alleges he devised a fraud scheme to tap the equity of homes owned by elderly Phoenix residents. He supposedly persuaded homeowners to refinance their homes through his business and then invest most of that money into the real-estate market through him. Then McCullough supposedly failed to invest the homeowners' funds in real estate and didn't have assets to guarantee the loans.

McCullough's next court appearance is scheduled for Aug. 4. He was released on $46,000 bond.

If convicted of all charges, McCullough faces up to 25 years in prison.

The indictment is the result of an investigation by the Securities Division of the Arizona Corporation Commission and the Department of Financial Institutions.

Banks selling assets to raise capital reserves

Friday, July 4, 2008

East Bay Business Times - by Jessica Saunders

More banks may join Bank of America Corp. in selling off assets, including real estate, as they try to raise federally required capital reserves, brokers said.

Regional banks, especially those in California, Nevada and Arizona, are having to set aside much higher risk capital reserves to offset potential losses on loans related to real estate, said Anton Qiu, a principal with TRI Commercial/CORFAC International, who specializes in acquisition and disposition of investment properties.

The federal Office of the Comptroller of the Currency sets the minimum percentage of capital banks are required to hold in reserve, Qiu said. Banks will try to raise the capital, but if they can't they may have to sell off assets, he said.

The higher reserves are being required to cover possible losses in construction and land acquisition loans as more and more real estate development projects are called off due to the economic downturn, Qiu said. Many banks went after construction and land financing business in order to compete with Wall Street lenders who were making big profits in realty transactions on the secondary market.

Jobs in jeopardy?

Friday, July 4, 2008

Phoenix Business Journal - by Chris Casacchia, Ashley Macha and Yvonne Zusel

Editor's note: This week kicks off our monthly series focusing on various Phoenix-area jobs -- from the recession-proof to the dangerous and the really cool.

Bleak economic indicators continue to drag the Phoenix market, but population growth is offsetting some of the problems.

As the region matures, more skilled workers are needed to meet market demands -- in good times and in bad.

It was in this vein that the Phoenix Business Journal set out to chronicle businesspeople caught in the middle of this tumultuous cycle. The downturn has wiped out mortgage firms, hurt retailers and squeezed entrepreneurs, while providing plenty of work for bankruptcy attorneys and accountants.

People from across the country flock to the Valley for a better climate, more space and lower living costs, and their migration to Arizona is leading many industries to boost hiring to try to keep up with the growth.

One of the best examples is health care, which gained 9,600 employees from May 2007 to May 2008, according to the Arizona Department of Commerce. Even with that increase, the industry continues to face major shortfalls, especially on the nursing front. Nationally, the average age of a

registered nurse is between 45 and 48, but in Arizona it's more than 60 -- and 10,000 nurses are near retirement. A December 2007 report by HealthWorks, the Arizona Healthcare Workforce Data Center, estimates the state will need about 49,000 new registered nurses by 2017.

"We are trying to increase the number of RNs and increase awareness of the nursing profession," said Barbara Thurber, an RN and recruitment director for Sun Health.

She said nursing schools doubled their enrollment from 2001 to 2007, and they offer refresher courses for nurses who want to return to the profession. Thurber said the highest demand is in acute care, followed by skilled nursing and home health.

CREATING NEW BUSINESS

Regulatory changes, new tax codes and a much more watchful eye from Uncle Sam -- particularly in the wake of corporate scandals -- have solidified the accounting profession as a hot spot for graduates and those seeking high incomes.

The 2008 Job Outlook report, a national gauge of hiring intentions, ranks accounting as the most in-demand job for undergraduates. On the graduate level, employers ranked the profession at No. 5.

Stricter corporate accounting and auditing regulations -- spurred by the Sarbanes-Oxley Act, which was enacted in 2002 to combat auditing negligence -- has given the sector great growth potential. Financial planning, especially for higher education, estates, asset transfers and inheritances, also has bolstered demand.

Personal financial planning accountant Jason Washo, who established Scottsdale-based Washo Financial LLC seven years ago, said 85 percent of an inheritance can disappear if not handled correctly.

"That can be pretty daunting," he said. "That's why the demand for what we're doing is so high."

Employment of accountants and auditors was expected to grow 18 percent between 2006 and 2016, the fastest rate of any occupation. The U.S. Department of Labor projects more than 226,000 jobs will be created during that time.

Regulatory and compliance issues also can be attributed to the nearly recession-proof careers of bankruptcy attorneys, who are getting busier as the mortgage debacle and lending crunch continue and retailers close their doors. Even since the new bankruptcy laws took effect in 2005, making it more difficult to file, economic factors have brought in new business.

"Even when the economy is going well, we still see people having problems," said Harold Campbell, a bankruptcy specialist for 30 years and state chairman of the National Association for Consumer Bankruptcy Attorneys.

"Bankruptcy is an area where the need is always going to be there," said Campbell, principal of Harold E. Campbell PC in Mesa.

TAKING A HIT

Record foreclosures, tightening credit and home depreciations are wreaking havoc on the Phoenix real estate market. With the industry tied so closely to the region's overall economic health, ancillary businesses such as banks, furniture stores and home improvement retailers are taking hits.

Some in the mortgage sector, which has lost thousands of jobs in the past two years, and real estate agents predict the downturn will be the worst to hit Phoenix in decades.

Economist Jay Butler's forecast also is clouded with uncertainty.

"Optimists are looking for recovery by the end of this year, and maybe even into 2009 or 2010," said Butler, director of Realty Studies at Arizona State University's Polytechnic campus. "Even if we do have recovery, it is going to be a spotty one."

Other experts predict the housing correction will last well into the next decade, possibly into 2015.

"I don't think anybody really knows," Butler said.

In the first quarter, there were 15,200 single-family home sales in the Phoenix metro area, down 29 percent from the same period last year. Townhome and condominium sales sank 46 percent, to 2,645, according to the latest figures released by ASU Realty Studies.

During that quarter, 27,404 Arizona homes had foreclosure filings, up nearly 245 percent from a year earlier and 45 percent from the fourth quarter of 2007. Arizona now ranks as the third-hardest-hit state in the nation.

One in every 95 homes here has been in the foreclosure process -- almost double the national average.

To complicate matters, many of the mortgage firms that serviced these borrowers no longer exist, including First Magnus, Great Southwest and American Home Mortgage.

Mortgages Ltd., one of the state's largest commercial real estate lenders, also is facing an uncertain future following the death of Chairman and CEO Scott Coles and a number of lawsuits filed against the firm.

OUT OF GAS

The auto industry also is going through one of its toughest times, as gas creeps toward $4.50 a gallon and consumers question whether their gas-guzzling SUVs were worth the deals they got on the lot.

"Once gas hit $3.58 a gallon, that's when people started going to smaller cars," said Byron Pope, associate editor of Ward's Auto, an industry magazine published in the Detroit area.

Nationally, major automakers reported a significant dip in sales for the second quarter. Only Honda had a year-over-year sales jump in June.

Arizona car sales aren't faring much better.

Bobbi Sparrow, president of the Arizona Automobile Dealers Association, said sales across the state were down 31 percent in the first quarter from the same period last year. She said the poor economy is likely to blame for the decrease, and she doesn't expect improvement in the second half of the year.

Startups discouraged

Liquidity and capital issues also are plaguing entrepreneurs, who should wait to bring their ideas to market, according to Tom Duening, director of entrepreneurial programs at the Ira A. Fulton School of Engineering at Arizona State University.

"It's very difficult to get any type of bank loan right now for any type of venture," Duening said, adding that most new businesses are struggling to survive.

Is Arizona economy 1 of the worst?

Jul. 2, 2008 12:00 AM

A few weeks ago, Richard Stavneak, the director of the Joint Legislative Budget Committee, told lawmakers that "Arizona has one of the nation's worst economies at this point."

Now, Stavneak is my perennial choice for MVP of state government. His knowledge of state finances is encyclopedic. He is universally respected and appreciated for being a dispassionate and objective arbiter of the numbers.

But is Stavneak correct, does Arizona have one of the worst economies in the country?

From Stavneak's perspective, it must seem that way. State revenues are down 7 percent this year, and the trend just keeps getting worse.

According to the Rockefeller Institute, at least 14 states are currently experiencing declines in revenues. Arizona's figure includes the effects of an income-tax cut. But even without that, the state would rank toward the bottom in terms of revenue production.

And Stavneak is hardly alone. According to Moody's, Arizona is one of nine states currently in a recession.

Over the last year, personal-income growth in Arizona ranked 42nd among the states. Customarily, Arizona is near the top.

So, certainly a case can be made that Arizona has one of the worst economies in the country at present. But closer examination reveals a more complex picture.

Arizona has certainly been hit harder by the housing-bubble burst. Housing prices hit a peak in the Phoenix metro area in June 2006, as did construction employment for both the Valley and the state.

Since then, housing prices in the Valley have declined 29 percent, according to the Case-Shiller Index. That's the largest drop of any of the 20 major metro areas included in the index and well above the index average of 18 percent.

According to the latest report from the Mortgage Bankers Association, the mortgage delinquency rate in Arizona is 20th highest among the states and the foreclosure rate is 10th.

Still, the percentage of Arizona's mortgages in serious trouble (at least 3 months delinquent) is not far off the national average. And 92 percent of Arizona mortgages are current, right at the national average.

Overall, Arizona's job creation has been sluggish. Since the housing and construction peak, Arizona has produced only 16,500 new jobs.

The common view is that housing and construction are what drive the other sectors of the Arizona economy. The data, however, suggest that contention is exaggerated.

Since the peak, Arizona has lost 42,100 construction jobs. That means that Arizona has actually produced 58,600 non-construction jobs during the post-peak period. That's considerably less than the 198,000 non-construction jobs created in a comparable period leading up to the peak. But it does suggest that the other sectors of the Arizona economy have been churning forward despite the housing woes.

The view becomes even more complicated based upon a regional analysis.

During the post-peak period, the Phoenix metro area has produced 77,000 new non-construction jobs, while the Tucson area created 15,000.

That means that the non-urban areas of the state have lost around 35,000 non-construction jobs during this period.

These sharp regional differences also appear in the unemployment rate. As of April, the Phoenix metro area and the Tucson area had unemployment rates decisively below the national average. The rest of the state, however, had an unemployment rate of 6.7 percent, considerably above the national average.

Critics say that Arizona's economy is too dependent on housing. No critic, however, has quite explained how an area can have more people moving in than other areas without having an economy more devoted to building homes for them.

Housing is, unquestionably, a big part of Arizona's economy. And it's in a deep fall right now.

The rest of the economy, however, appears to be churning ahead, particularly in the two urban areas. Broad-spread economic distress appears to be concentrated in the non-urban areas.

So, Arizona certainly does not currently have one of the country's most robust economies, as it has had for so many years. But if you look beyond housing and construction, Arizona also does not seem to have one of the worst-performing economies either.

Of course, that's a lot to look beyond, particularly for folks whose job it is to cope with the bottom falling out of state revenues.

Six Most Promising Cities for Retirees

Two years ago, retirees were struggling to find affordable retirement retreats. Today, the price of real estate has fallen in many markets, giving those who waited a number of good options.

Fortune magazine found six cities where the real estate deals are attractive for retirees. “What seemed impossible a few years ago is now possible,” the magazine says. Here are the six most promising cities, according to Fortune:

• Miami
• Las Vegas
• San Diego
• Tampa, Fla.
• Denver
• Phoenix

Source: Fortune, Chris Taylor (06/23/2008)

APS lines may spoil views, West Valley residents fear

Rebekah L. Sanders and Cecilia Chan
The Arizona Republic
Jun. 29, 2008 12:00 AM

Newcomers flocking to developing West Valley cities for homes that still offer pristine views are in turn bringing in infrastructure that threatens to blemish the Sonoran Desert skyline and scar hundreds of acres of wilderness.

Two major utility projects under way are provoking the ire of the very residents, city officials and developers they're meant to serve.

"It's a chronic dilemma," said urban-growth expert Grady Gammage Jr., a land-use lawyer and senior research fellow at Arizona State University's Morrison Institute for Public Policy.

"We want growth to pay for itself, so we don't want to put infrastructure in long before it comes. But when you do that, people are taken by surprise."

Arizona Public Service Co. wants to string 40 miles of high-voltage electrical lines along metal towers reaching up to 195 feet high through Peoria, Surprise and Buckeye.

They would help power about 60 housing developments planned over the next 20 to 25 years in the northwest Valley and help ensure a reliable power supply for the entire area.

In Buckeye, Houston-based Transwestern Pipeline Co. next month will begin laying part of a 259-mile natural-gas pipeline through the West Valley, coming as close as 20 feet to some homes. It will supply Arizona's growing natural-gas needs, whether for local electrical power plants or backyard grills.

Part of the problem is likely unavoidable, Gammage said.

"When you build stuff people need but don't want to see, there's going to be tension," he said.



Opponents want the projects built farther away from areas where people live or are expected to live. Additionally, they say the utility companies should have solicited more resident input to ensure safety and protect the surrounding desert.

APS and Transwestern say alternative routes would cost more. And they say they're going through the proper channels for state and federal approval.

In APS' case, sitting the project along its preferred choice, the Carefree Highway Alignment, would cost about $190 million, compared with $200 million for its alternative choice, Arizona 74, because it's longer, APS Project Manager Mike DeWitt said.



The Carefree route would end up costing APS more money and eventually its ratepayers because of access issues: The land has washes and rough terrain that APS must traverse to build the project, said Peoria assistant engineer Maher Hazine.



APS also argued that the Arizona 74 plan would take more time to build.

3 councils oppose route

APS needs approval for its preferred route from the Arizona Corporation Commission, the state's utilities regulator. A public hearing before the commission's Power Plant and Line Siting Committee is tentatively scheduled for Aug. 17.

The site committee will then forward a recommendation to the commission, which has the final say.

In anticipation, Peoria, Surprise and Buckeye city councils recently passed resolutions formally opposing the project's route.

Peoria, which said the towers are best suited along two-lane Arizona 74, aims to send its city attorney to argue its case at the hearing.

City officials point to the future development of the state route into a four-lane divided highway as the logical choice for the project.

DeWitt said Arizona 74 is a designated scenic corridor and no utility company he knows of has even sited a project along a scenic corridor.

Peoria residents are upset that overhead power lines could come so near to their upscale, award-winning Vistancia community. They have bombarded APS with 100 letters and an 800-signature petition. The 7,100-acre community this month also started a mass phone campaign, reportedly keeping circuits at APS busy and requiring the utility company to assign two secretaries to answer phones.

Residents complain that the close proximity of power lines to their homes would diminish property values, pose health risks and mar the desert skyline.

Lynda Reithmann, 52, who moved from the Moon Valley area of Phoenix a year ago, said if the high-voltage lines go up along the Carefree Highway, she would see the towers from her backyard, about a mile and a half away.

"Because of the mountains, some of the lines would probably be 195 feet high," she said. "It will do a lot of damage to the pristine desert there."



Peoria Mayor Bob Barrett said if the Carefree route were chosen, APS would build roads under the lines to access them for maintenance. He said it would leave a scar through the heart of Peoria.

DeWitt said building a road that runs the length of the line could happen. But he said it would provide a good opportunity for recreational activity.

Like Peoria, Surprise officials want the high-voltage project on Arizona 74 north of future developments, which are expected to add more than 32,000 homes.

"You never want to see that kind of scar, if you will, going through any community," Surprise Mayor Lyn Truitt said. "If we can put it in a place that's less intrusive, that's what we want to do."

If the Carefree Highway alignment were approved, according to DeWitt, future builders could construct their developments so the impact of the twin 230-kilovolt and 500-kilovolt power lines would be minimal.

Residents already pass by an existing 500-kilovolt transmission line on their way into Vistancia, De Witt said, and developers worked around that line to reduce its visibility.

"We did plan residential uses as far away as possible and surrounded the (existing) towers with commercial land uses. But the towers are very visible," Mark Hammons, senior vice president of Sunbelt Holdings, one of Vistancia's developers.







One of the difficulties with large energy projects, Gammage said, is that residents sometimes feel they've been caught by surprise.

To the extent a developer knows big projects are coming, the developer must include information in a report for home buyers, he said.

"But nobody ever reads those things," Gammage added.

Pipeline opposition

Farther south, Buckeye officials and developers have taken the lead in opposing Transwestern's natural-gas pipeline.

At least 28 miles of pipeline will cut through or close to 31 housing communities that are built or approved along Sun Valley Parkway.

One of those is Tartesso in north Buckeye, the largest master-planned community built by Scottsdale-based Stardust Development. It is projected to eventually hold 48,500 houses, said company President Chris Heeter. Currently, about 1,000 homes have been built.

Heeter is one of the more vocal critics of the pipeline. It will cross his company's development and come as close as 20 feet to about five homes, he said.

"There's no question the pipeline is a legitimate need for a state that's growing like Arizona is," he said. "I just think they could put it in a safer location."

Transwestern rejected a 19- to 25-mile longer alternative route proposed by Buckeye so the pipeline would swing out around the town through mostly vacant desert.

Company spokesman John Ambler said the alternative route would add millions of dollars to the cost, which would show up later for consumers as higher prices and disrupt more land.

"It's trading impacts in one area for impacts in another," he said.



The Buckeye Town Council has fought the energy giant for more than a year, reaching a settlement last month that requires stricter safety precautions during construction but leaving the pipeline route intact. Transwestern said it will use new motion-detection equipment to alert the company to anyone coming too close to the line.

Stardust reached an agreement with Transwestern that says crews will try to avoid the development's existing infrastructure - water and sewer lines, storm drains, roads, retention basins and electrical lines - and replace anything that's damaged in similar or better condition.

So far, efforts to keep the pipeline farther away from houses haven't worked.

Though residents expressed concern at an initial meeting last year with Transwestern and the Federal Energy Regulatory Commission, which approved the project, their reactions have been more muted than their counterparts in Peoria, fighting APS.

Mesa officials discuss Gateway area development

June 26, 2008 - 9:48PM

Sonu Munshi, Tribune

A paradigm shift. Balance and flexibility. Protecting the airport while generating high quality jobs.

Those were the buzzwords at a joint Mesa City Council and Planning and Zoning Board meeting on Thursday to discuss the future of a 32-square-mile area around Phoenix-Mesa Gateway Airport. It’s an area that’s been the subject of much debate, with the city taking on big landowners over whether to allow housing in a section of land near the airport.

Mayor Scott Smith reiterated that it would be best to take time to plan for the area, keeping flexibility in land use. The joint session was set up to hear the big-picture items on the $860,000 city-commissioned study done by consultant group HDR Engineering.

The previous council debated the merits of two land-use plans, one of which paved the way for high-density housing north of the airport, just south of Elliot Road and west of Loop 202.

But former mayor Keno Hawker opposed the idea of bringing housing to that section, in anticipation of noise complaints due to aircraft flying overhead. His plan was strongly opposed by area landowners.

Developers urged flexibility instead of placing rigid designations on the area, instead favoring a broader framework.

Smith said the city seemed to have “leapfrogged” to land-use planning instead of looking at other components including economic development, financing and infrastructure.

“I’d much rather do it right than do it to meet some sort of self-determined deadline,” Smith said. “This is a development plan, not so much as a real-estate development plan but as an economic development plan, an airport development plan, of which the land use is the final piece.”

HDR vice president Mark McClaren underscored that the initial challenge was to develop a plan to create 100,000 high-quality jobs and protect the airport, which he termed “a significant catalyst for growth.”

The economic opportunity, McClaren said, starts with residential development, which creates demand for retail and then establishes labor force and then creates demand for the airport.

Unlike the current Mesa 2025 general plan, which emphasizes industrial development with limited residential development, the study notes there needs to be equitable distribution between housing and commercial uses to bring in more sales-tax dollars. Protecting the airport, however, is emphasized strongly.

Smith took the housing matter head-on, saying it’s all good to have a vision of a mixed-use urban environment, but that there is an airport which could conflict with that vision.

“How do we reconcile the vision of that community with the fact that we have airplanes flying over?” he said.

The city’s planning director, John Wesley, said industrial development was earmarked for near the airport’s runway because it tends to be the most compatible with airport use.

Smith noted that housing drives the market in Arizona and would help drive infrastructural growth.

City Manager Chris Brady said, that’s where the city would have to make a “paradigm shift.”

“We can’t keep saying residential is a threat always to airports because we don’t know 20 years from now how those airplanes are going to take off, what those noise levels are going to be,” he said.

He added the goal and vision would be to protect the airport and to create 100,000 jobs, challenging the market and the developers to make that work.

That appeared to be the consensus.

Smith said the burden would be on developers to prove their projects would not threaten the airport and to show how they would affect airport operations.

Developer kills mixed-use project in Mesa

June 25, 2008 - 10:12PM

Sonu Munshi, Tribune

A real estate developer has pulled out of a mixed-use project in downtown Mesa. New York-based Athena Group decided not to move ahead with plans for the southwest corner of University and Mesa drives, city officials confirmed Wednesday.

Mayor Scott Smith said with the economic situation being as tough as it is, the company's decision "did not come as a shocker." "You want things to work out but this is the nature of real estate," Smith said. "You're at the whims of the economy and finances."

City Councilman Kyle Jones said the council, which took office this month, was given the update about a week or so ago. He said he was disappointed with the outcome. "I thought they would proceed," he said.

"When we first awarded them the opportunity, they had a timeline to do their due diligence and see if it was economically viable for them," Jones said. "With their studies they decided it was not in their best interest to proceed."

The Athena Group did not immediately return calls for comment. The residential, retail and office project was envisioned for 20 acres of a city-owned 25-acre parcel. Mesa Community College has considered extending its campus on the remaining five acres, but the city's economic development director, Bill Jabjiniak, said nothing definite has been worked out. Jabjiniak said the city got confirmation from Athena on halting the plans in April.

He attributed the outcome to "weak real estate fundamentals" and said the company decided that for now the project would be "economically unfeasible."

He added the previous council was informed about the decision.

Jabjiniak said the city is continuing to work through a commercial broker, Phoenix Commercial Advisors, to scout other developers to take over the property.

"It is a real estate downturn so we're being patient," he said.

In January, the council gave Athena a nod to conduct a market study and move forward with a preliminary design for the vacant parcel. Prior to the project, a time-share resort and a minor league baseball park had been proposed unsuccessfully for the site.

Smith said he's still looking at the positive side.

"I look at this as an opportunity as we can look at what we can do with the entire downtown area as a whole," Smith added. "We'll revisit the site with some of the locals and maybe we'll revise our vision for that area."

$300 billion foreclosure-rescue bill advances

Associated Press
Jun. 25, 2008 12:00 AM

WASHINGTON - A major foreclosure-rescue bill cleared a key Senate test Tuesday by an overwhelming margin, with Democrats and Republicans both eager to claim election-year credit for helping hard-pressed homeowners.

The mortgage-aid plan would let the Federal Housing Administration back $300 billion in new, cheaper home loans for an estimated 400,000 distressed borrowers who otherwise would be considered too financially risky to qualify for government-insured, fixed-rate loans.

An 83-9 vote put the plan on track for Senate passage as early as today, but President Bush is threatening a veto, and Democrats are fighting each other over key details. Those challenges will probably delay any final deal until mid-July.

The bill advanced as separate reports underscored rising economic anxiety: Consumer confidence slid to its lowest level in more than 16 years, and closely watched indexes showed a continuing decline in home values.

At the Capitol, Sen. Chris Dodd, D-Conn., Banking Committee chairman, said the lending measure "would allow us to begin to put a tourniquet on the hemorrhaging of foreclosures in this country."

"We need to demonstrate to people in this country that have lost an awful lot of faith in almost everything, but certainly in (Congress), that we can get something done, that we can put aside differences and make a difference in their lives," Dodd said.

Still, conservative Democrats known as "Blue Dogs" are concerned about how to pay for the measure, and members of the Congressional Black Caucus call it unacceptable, arguing it doesn't do enough to address the needs of Black Americans.

Congressional leaders also are divided on how high to place loan limits that apply to government mortgage insurance and financing. The Senate bill sets those limits at $625,000 while a House-passed version puts them at $730,000, a crucial difference in high-cost housing markets like California, home to House Speaker Nancy Pelosi.

Lawmakers have been negotiating behind the scenes with the Bush administration to avert a veto. Dana Perino, a White House spokeswoman, told reporters the Senate measure has "some really good aspects" and Congress is "on the right path."

Borrowers would be eligible for the housing rescue if their mortgage holders were willing to take a substantial loss and allow them to refinance, and if they could show an ability to make payments on the new loan. They would ultimately have to share with the government a portion of any profits they made from selling or refinancing their properties.

The bill also would tighten controls and create a new regulator for Fannie Mae and Freddie Mac, the mortgage giants that provide huge amounts of cash flow to the home-loan market by buying loans from banks.

It would provide a $14.5 billion array of tax breaks, including a credit of up to $8,000 for first-time home buyers who bought in the next year. And it would boost low-income tax credits and mortgage-revenue bonds. The measure falls $2.4 billion short of covering the costs of those tax items, a sore point for Blue Dogs who oppose initiatives that add to the deficit.

Mixing in a controversy involving lawmakers, Republicans and Democrats on the Ethics Committee proposed adding mortgage-disclosure requirements for members of Congress to the bill following a flap over reports that Dodd and Sen. Kent Conrad, D-N.D., got preferential home loans from Countrywide Financial Corp., a lender at the center of the subprime-mortgage mess. The proposal by John Cornyn of Texas, senior Republican on the committee, and Barbara Boxer, D-Calif., the chairwoman, would remove an exception that currently allows lawmakers to omit home mortgages from their annual financial disclosures.

On the broader bill, the 42 House members of the Black Caucus said in a letter to Democratic leaders last week that it has "glaring omissions," including affordable-housing funds for states affected by Hurricane Katrina and grants for states and localities to buy and fix up foreclosed properties. To draw GOP support, Senate Democrats diverted the affordable-housing money to pay for the foreclosure-aid program.

Some Republicans, however, are still vehemently opposed to the legislation, which they describe as a government giveaway for reckless lenders and investors.



The Senate bill would provide $3.9 billion in grants to deal with foreclosed-on properties - a House plan would provide $15 billion - but the White House singled out the funds in its veto threat, and Blue Dogs are demanding that the money be offset with cuts elsewhere.

Fed expected to leaves rates unchanged

Associated Press
Jun. 24, 2008 12:00 AM

WASHINGTON - Straddling risky economic crosscurrents, the Federal Reserve is expected to stand still this week on interest rates.

Fed Chairman Ben Bernanke and his colleagues, who open a two-day meeting today, are in a tricky spot: They are faced with stuck-in-a-rut economic growth along with inflation threats from rising prices for energy, food and other commodities. Fed officials have made clear that because of concern about inflation, they're not inclined to cut rates further. At the same time, they have recognized that pushing rates up too soon could undermine an economy buffeted by housing, credit and financial woes.

"These are very challenging waters to have to navigate," said economist Richard Yamarone at Argus Research.

Against that backdrop, the Fed is almost certain to hold its key interest rate steady at 2 percent when it wraps up its session on Wednesday. If that's the case, the prime lending rate for millions of consumers and businesses would stay at 5 percent. The prime rate applies to certain credit cards, home equity lines of credit and other loans.

Wall Street investors and a few economists believe inflation problems might force the Fed to start boosting rates in August or later this year. However, many others think that's a situation the Fed would like to avoid - especially given that the housing market is still flailing and foreclosures are at record highs.



"It's an extremely hard place for the Fed," said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School of Business.

So what's the Fed to do?

"Tread lightly on rates and carry a big rhetorical anti-inflation stick," said Ken Mayland, president of ClearView Economics.

In speeches over the past few weeks, Bernanke and his colleagues have been doing just that. They've ramped up their tough anti-inflation talk to rein in inflation expectations of consumers, investors and businesses. If those groups think prices will keep on rising, they'll act in ways that can worsen inflation.

And, Bernanke, in a rare public utterance for a Fed chief, sounded a warning against the slide in the U.S. dollar contributing to an unwelcome rise in inflation. He sought to use words - versus action - to bolster the dollar and try to lessen inflation pressures.

Consumer prices in the first five months of this year have risen at an annual rate of 4 percent. That's down from a 4.1 percent increase last year - the biggest jump in 17 years - but is still too high for the Fed's liking. Gasoline prices and oil prices have set a string of record highs. Gas has topped $4 a gallon, while oil prices settled at $136.74 a barrel.

On Wall Street, struggling stocks finished mostly lower on Monday; the Dow Jones industrials slipped 0.33 points to 11,842.36.

Economists predict the Fed's policy statement, released Wednesday, probably will go further in highlighting inflation risks but won't go as far as to signal a rate increase at the Fed's next meeting on Aug. 5.

With any luck, if the Fed is successful with this strategy, it might be able to hold rates at current levels through the rest of this year and won't have to start to boost them until next year, some economists said.

That would give the economy more time to gain traction. The Fed is hoping that its powerful series of rate cuts and the government's $168 billion stimulus package will help energize the economy later this year and into 2009. The Fed launched its rate-cutting campaign last September and ordered its most recent reduction in late April. Those lower rates take months to work their way through the economy, however.

Mayland said he believes damage and business disruptions from the Midwestern floods will add to the economy's weakness - another reason why he and others think the Fed will be holding rates steady through the rest of this year.

The economy has grown at a snail's pace in recent months. And, employers have cut jobs every month so far this year. The unemployment rate jumped to 5.5 percent in May, from 5 percent in April, the largest one-month increase in two decades. The unemployment rate is expected to keep on rising in the months ahead - even if economic growth improves somewhat.

Donald Kohn, the Fed's No. 2 official, recently said that in the short term, it may be that some rise in both inflation and unemployment will have to be tolerated.

Setting interest rates "in a manner that balances the undesirable effects of a shock to the system on both inflation and employment will tend to be more efficient than setting policy so as to deliver more extreme outcomes in either inflation or unemployment," Kohn said.